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A small manufacturer of gas grills is making final changes to its 2009 operating budget and considering several changes in pricing, advertising, and product availability. This short case addresses the topic of contribution analysis as an easy way to analyze profit planning issues such as adding or dropping a product or service; changing a price; adding or decreasing expected volumes; or preparing a profit budget. In this situation there are three products, each with different proportions of variable and fixed costs. The product with the highest profit/unit on a full cost basis has the lowest contribution/unit on a variable cost basis, and vice versa. Four different marketing plans are proposed before one is finally adopted as the plan for the year. At year end, the actual results can be compared to the budget and to a flex or adjusted budget based on the actual product volumes realized. The numbers are simple and the students can readily see the benefit of variable costing.

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Breeden Electronics USA is a start-up division of a German company. It plans to produce two products, both electronic signaling devices. Herman Klein, the division president, has asked his controller, Marlene Baer, to compute several break-even sales figures as they assess the sales level that is necessary to meet the profit target established by the parent company. Baer must conduct several break-even analyses and consider the impact on profit if production exceeds sales. This is the first in a series of two cases that can be used to explore the evolution of cost systems. The main issues of the two cases are as follows: in the A case, the company uses a traditional costing system. The main questions relate to breakeven analysis and the effect of inventory buildup on profit. The B case (UV1779) introduces the use of an activity-based costing system to allocate costs so that the company can assess both product and customer profitability. The two cases can be used in two classes or together in one class.

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Marlene Baer, the controller of Breeden Security USA, recognizes that grouping all manufacturing overhead costs together and allocating them to Breeden's two products is not very accurate. She groups overhead costs by activity and then allocates them to the two products. The system resembles a simple activity-based costing system. It introduces the definition of activities, costing those activities, and computing product cost based on their use of the activities. The revised product costs are considerably different, and analyzing what causes the differences is important for discovering where ABC can provide valuable information. In addition, at the end of the year, profits have been reduced by the need to take care of a growing and increasingly complex packing and shipping activity. Baer defines a new activity (order handling), computes the cost per order, and begins to revise the data on product profitability and to develop data on customer profitability. Having discovered the high cost of handling each order, she now has good reason to work on activity-based management and the notion of customer profitability making that process more efficient, and perhaps more customer friendly. This is the second in a series of two cases that can be used to explore the evolution of cost systems. The main issues of the two cases are as follows: In the A case (UV1778), the company uses a traditional costing system. The main questions relate to breakeven analysis and the effect of inventory buildup on profit. The B case introduces the use of an activity-based costing system to allocate costs so that the company can assess both product and customer profitability. The two cases can be used in two classes or together in one class.

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Ideal for MBA students, this case presents an exercise that tests students' knowledge of financial accounting and reporting and how the tax system affects financial reporting. Students are asked to complete an exercise that focuses on the income tax footnote. This footnote provides information that can be used to assess a seller's tax liability or an acquirer's tax costs associated with an M&A transaction. As part of the exercise, students are asked to derive the income tax basis and to complete a table of deferred tax assets and liabilities as reported in the income tax footnote.

learning objective:

Students are asked to derive the income tax basis and to complete a table of deferred tax assets and liabilities as reported in the income tax footnote.

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This case is about the financial impact of negative publicity and a company's reaction. A Public Service Enterprise Group had ownership interest in five nuclear power plants, three of which were located in Lower Alloways Creek, New Jersey. These three plants had been cited for concerns about a safety conscious work environment by a fired employee and the Nuclear Regulatory Commission. One U.S. senator and two congressmen had written a letter to NRC requesting an investigation of the situation.

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Dominion Resources was the fourth-largest operator of nuclear power plants in the United States with seven nuclear reactors in operation. Two of the reactors had been acquired in the past five years: Millstone (2) in 2001 and Kewaunee in 2005. This case is about excellent due diligence and financial disclosure in acquiring major fixed assets (nuclear power plants) and the impact on the financial results and investor confidence.

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In March 2002, during a scheduled refueling outage, workers at FirstEnergy's Davis-Besse nuclear power plant found a football-sized hole in the reactor head caused by boric acid corrosion. Redundant shielding prevented any radiation leakage, but FirstEnergy projected the outage would last two to three months and cost from $15 million to $30 million. Instead, the outage lasted 26 months and cost $588.9 million. Students will learn the financial impact of the event, how investors reacted, and lessons in financial transparency.

learning objective:

Students will learn the financial impact of FirstEnergy's Davis-Besse nuclear power plant event, how investors reacted, and lessons in financial transparency.

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This is a Darden case study.

A large bank is attempting to cost justify a proposed, large (60,000 sq. ft.) data center based upon energy savings achieved through "green" technology, principally through water cooling and energy recovery. The investments total about $100 million, offset somewhat by funds recouped from the closing of an older facility. The new building is expected to open with 700 racks of server computers. The power consumed by each rack costs more than the amortized cost of the computers themselves. The bank expects a 12% return on discounted cash flows.

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This is a Darden case study.

In 2007 STAPLES, Inc., was the world's largest office products company, operating over 1,900 office superstores throughout North and South America, Europe, and Asia. It employed 74,000 people and recorded 2006 sales of $18.2 billion―a record. Operating cash flow, however, declined somewhat. This case includes the consolidated balance sheets and statements of income for STAPLES, Inc., and Subsidiaries. Also included is a partially completed statement of cash flows for 2006. The students must complete: the statement of cash flows; interpret the "investing activities;" interpret the "financing activities;" interpret the net increase (decrease) in cash and cash equivalent.

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This is a Darden case study.

On September 20, 2000, Jonathan Weill, a Wall Street Journal reporter in Dallas, Texas, published a piece questioning the profitability and accounting of Enron Corporation. He based his article on a study of Enron's financial statements and conversations with staff at the Financial Accounting Standards' Board (FASB), accounting professors, financial analysts, and others. "It took me a while to figure out everything I needed to... It probably took a good month or so. There was a lot of noise in the financial statements." His piece was read by James Chanos, founder and president of Kynikos Associates, a firm that specialized in short-selling. How did Weill and Chanos figure Enron out when so many others were pushing up the stock price? How did they know to do that kind of analysis? Only the answer is simple: through study, application, and more application. You cannot develop financial analysis expertise overnight. Our objective in this document, however, is to present a very basic structure for financial analysis that will help move you toward that goal. We focus on what to look for in the financial statements, how to do basic ratio analysis, what financial forecasting entails, and how analysts use financial statement data in valuation. We intentionally focus on the mechanistic nature of financial analysis because these tools are fundamental building blocks common to the analysis of most firms. Without understanding this basic structure the unique issues facing a firm would be difficult to interpret.

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